Cultural Challenges and Opportunities at TNKBP

1
Cultural Challenges and Opportunities at TNK-BP

• Association of European Businesses, 17 June 2005
  
• Paul McMorran

2
Overview

• TNK-BP background and business snapshots
• What about cultural differences?
• Building a TNK-BP Culture
• Challenges and opportunities

3
TNK-BP presence
4
TNK-BP transaction
Alfa Access Renova
50
50
BP
TNK ONACO SIDANCO (57) RUSIA Petroleum(29) Rospa
n (44)
SIDANCO (25) RUSIA Petroleum (33) Moscow retail

• Reserves and production
• Long-term growth rates
• Leveraging on existing Russian partnership

• World-class technology
• World-class management
• Strong international partner

6.15bn (2.4bn 3.75bn in ?? shares)
??R
??
1.4bn
SLAVNEFT (50)
??R
??
5
TNK-BP leadership team
TNK-BP Board of Directors Chairman Mikhail
Fridman (AAR) Deputy Chairman Richard Olver (BP)
Board of Directors
BP Directors Patrick Chapman Brian Gilvary Tony
Hayward Lamar McKay
AAR Directors Len Blavatnik Alex Knaster Viktor
Vekselberg Jean-Luc Vermeulen
President CEO Dudley
Executive Director Vekselberg
COO McVay
Executive Director Khan
COO McVay
EVP Strategy Bus. Development Sliger
EVP Internal Affairs Kondrashov
Chief Legal Counsel Maydannik
VP Human ResourcesCridland
VP Comms PA Henshaw
EVP Support Services Bennett
EVP Field Services Brezitsky
EVP PPM Wright
EVP Support Services Bennett
EVP Upstream Dibtsev
EVP Downstream Considine
EVP Technology Dupree
CFO Potter
EVP Support Services Bennett
External Hire
BP
TNK
6
TNK-BP operations

• 2004 Production 1.45 million bopd
• (2nd. in Russia, 7th. worldwide, non-state
  oil companies)
• Year-End 2003 Liquid Reserves
• SPE Total Proved 9.1 billion bbl
• SPE Total Proved Probable 17.4 billion bbl
• Total number of fields 250
• Well Stock 15,000 producing and 9,500 idle
• Pipeline (km) 28,000
• Retail Sites Over 2,100
• Refineries 6
• Employees 100,000 in Russia and Ukraine
• Operate over 11 time zones

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How does TNK-BP compare with BP?

• TNK-BP
• 1,5 million boe/day
• 1.9 billion (2005)
• Vertically Integrated (Upstream
  Downstream)
• 100,000
• Russia Ukraine
• 4.3 billion boe (SEC)
• 127 (SEC)
• 9 (SEC)
• 20bn ?
• 903

• 4,0 million boe/day
• 14.4 billion (2005)
• 4 Business Streams (Upstream, Downstream,
  Chemicals, Gas/Power/Renewables/IST)
• 100,000
• Global
• 18.3 billion boe (SEC, 2003)
• 89 (SEC)
• 14 (SEC)
• 200bn (Market Capitalization)
• 1800 (?)

TNK-BP Production Capital Investment Structure E
mployees Geography Reserves RRR R/P Value HR
Staff
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TNK-BP Two years after the Deal

• History
• BP-AAR deal announced February 11, 2003
• Legal agreements
• signed June 2003
• TNK-BP operational September 1, 2003

• Today
• TNK-BP fully operational
• almost 22 months
• Robust 2003 and 2004 performance
• Production growth 13
• Exports 52 of production
• Enhanced debt structure
• Five year strategy adopted
• Strong 2005 business plan

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But what about cultural differences?

• Between heritage organizations, some obvious
  differences
• Western vs. Russian national cultures
• Global vs. regional operations and experience
• And some less obvious
• Public company vs. owner-founder heritage
• Business environment and organizational maturity
• Distinctive corporate cultures (TNK, Sidanco, and
  BP)

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Example Executive Reward
Executive Reward

• Owner-Founder
• tradition
• Individually negotiated
• Mostly cash
• Discretionary bonus
• High probability targets
• Penalties/fines when
• considered necessary

• Investor owned,
• employee managed
• Structured programmes,
• driven by the market
• Emphasis on internal
• equity
• Stretch targets
• Combination of cash,
• deferred cash, shares
• Substantial benefits
• expatriate items
• Motivation should be
• positive

10
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but not only differences

• Between heritage organizations, many striking
  similarities
• Focus on results, and commitment to achieving
  them
• Responsiveness to new business opportunities
• Creativity and innovation
• Committed, professional workforce
• Strong sense of teamwork

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Making TNK-BP Work

• Our goal is to become a world-class Russian
  company and industry leader in Russia
• We continue to build value across the
  organization by
• Driving operational performance through selected
  technologies and processes
• Imposing high standards of corporate governance
• Major steps towards world-class HSE performance
• Developing people
• Building TNK-BPs own corporate culture

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Building a TNK-BP culture

• Cultural challenges
• Integration between diverse heritages and
  cultures does not happen by itself it must be
  led from the front
• Performance requires the right incentives
• Performance, initiative and creativity will
  thrive only if our corporate culture nurtures
  them
• Steps forward
• Mix of heritages across senior and middle
  management
• Diverse operational and functional teams, to
  build understanding and facilitate exchange of
  knowledge
• Culture-building activities across the
  organisation

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Leadership heritage
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Building a TNK-BP culture

• Corporate activities facilitated by HR include
• Leadership events
• Secondments between BP and TNK-BP
• Executive development
• Developing young professionals
• Building English and Russian language capability

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1. Leadership Events

• In Q4 2003, for Headquarters executives
• Recognising cultural differences
• Valuing different perspectives
• Identifying what to keep, from each heritage
• From 2004, in Headquarters and Regions
• Communicating where we want TNK-BP to be
• Defining behaviours which make this possible
• This year, across TNK-BP
• Code of Business Policies and Corporate
  Standards
• Workshops to support company-wide launch

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2. Secondment to BP

• Goals
• Accelerate development of skills needed to meet
  strategic
• TNK-BP business objectives
• Develop agents of change, who will catalyse the
  process
• of organisational development at TNK-BP
• Drive two-way transfer of knowledge, corporate
  culture and
• mutual understanding between BP and TNK-BP
• Prepare high-potential Russian staff for
  promotion to
• positions of greater responsibility

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Secondment to BP (continued)

• Programme Features
• Secondees selected from HQ and regional
  nominees
• Destinations BP centres of excellence, mainly
  in US, UK
• Programmes customised to individual development
  needs
• Duration typically 18-24 months, less in some
  cases
• Secondees occupy real positions as part of an
  operational
• team
• Individual mentoring and management coaching,
  with clear
• objectives and periodic progress appraisal
• Post-secondment career plan, periodically
  reviewed

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Experience Exchange with Expatriates
Expatriate Name John Doe Stream/BU/Function
HSSE (for illustration only) Job Title Generic
HSSE Leader Date into current job 01 September
2003 Team Leader Vice President, Function
Location Nizhnevartovsk

• Skills, Knowledge and Experience, relevant to
  TNK-BP
• Solid understanding of the business impact of
  loss prevention, based on 20 years international
  
• experience in upstream and chemical industries.
  Ability to convey this convincingly to others.
• Expertise in investigation of industrial
  incidents and analysis of causes.
• Expertise in development of industrial risk
  management strategies.
• Specific expertise in management of hazardous
  materials, particularly asbestos.

Team Member

KPI 2004
KPI 2005

• Successfully complete Loss Control Leadership
  programme, leading to professional certification
  in Q4
• Take primary responsibility for incident
  investigation within the business stream by end
  Q3
• Develop and implement in Q2, under J.Does
  guidance, a risk management strategy for asbestos

• Enroll (in Q3) in an internationally-recognised
  Loss Control Leadership programme, with coaching
  by J.Doe
• Take lead role in 2 major incident
  investigations in Q4
• Develop specific expertise, by year end, in
  management of asbestos, and related health and
  safety issues

Sergei Ivanov Deputy Head of Department

• Complete 50 of Loss Control Leadership
  programme by year end leading to professional
  certification in 2006
• Report on all major incident investigations
  within the business stream by end Q3
• Develop and implement in Q2, under J.Does
  guidance, a risk management strategy for road
  accidents

• Enroll in an internationally-recognised Loss
  Control Leadership programme, with coaching by
  J.Doe
• Report on 2 major incident investigations during
  Q4
• Develop specific expertise, by year end, in
  analysis and prevention of industrial road
  accidents

Sveta Ivanova Senior Specialist

• Successfully complete Risk Management
  certification programme by Q4
• Take responsibility for one major incident
  investigation within the business stream by end
  Q4
• Develop and implement in Q2, under J.Does
  guidance, a risk management strategy for
  alcohol-related incidents

• Enroll in a Risk Management certification
  programme
• Assist at 2 major incident investigations during
  Q4
• Develop specific expertise, by year end, in
  analysis and prevention of incidents involving
  alcohol at work

Yuri Ivanov Specialist
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3. Executive Development

• From 2004
• Two new executive development programmes,
• developed and delivered in-house
• TNK-BP partnerships established with two leading
• business schools
• Two programmes, with distinct leadership target
  groups
• 1. Creating a World Class Company
• INSEAD business school, France
• 2. International Oil and Gas Leadership
• Thunderbird business school, USA

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Executive Development (continued)

• Features common to both programmes
• In-house seminars, developed specifically for
  TNK-BP
• Providers are world leaders in executive
  development
• Global best practice, applied to our particular
  business
• environment
• Action learning approach, using real business
  issues,
• proposed by senior TNK-BP executives
• Seminars build individual leadership capability,
  but also
• team culture

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4. Developing Young Professionals

• Young Specialists University graduates,
  recruited fresh-out
• with
  qualifications directly relevant to our
• business, and less
  than 3 years seniority
• Goals
• Structured development programme, catering to
  specific
• needs of each business stream, over first 3
  years
• Coherent programme framework and quality control
  across
• the organisation, led by corporate HR
• Corporate events for all YS. International
  networking
• Distinctive identity for young TNK-BP
  professionals

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5. Building Language Capability

• TNK-BP is committed to becoming a bilingual
  organisation
• Language facilitates (or impedes) exchange of
  knowledge
• between Russian and expatriate professionals
• HQ interpretation budget runs to millions, but
  the real
• cost of bilingual communication (and
  miscommunication)
• is much greater
• Huge demand for English and Russian language
  tuition,
• to address immediate business needs and
  longer-term
• career development

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Building Language Capability (continued)

• Learning Standard in place, and in use. We can
  define
• proficiency, set targets, and measure progress
• Executive language KPIs linked to
• 2004/5 bonuses, with good results
• Self-study English programme
• established, with 200 participants
• Selected providers, improved
• control over quality and cost
• e-learning prototype for English
• developed and evaluated

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Cultural Challenges and Opportunities

• As we
• Overcome cultural stereotypes and build
  understanding
• Exchange knowledge and create innovative
  solutions
• Harness latent intellectual capital
• Align individual aspirations with Company
  strategy
• We have the means to
• Build a world-class oil and gas company, here in
  Russia
• Rejuvenate a mature industry
• Create spectacular new opportunities for
  business, and for
• individual careers
• Live and breathe a unique corporate culture